CME and CFTC Charge Unregistered Hedge Fund with Spec Limit Violations

CME and CFTC Charge Unregistered Hedge Fund with Spec Limit Violations

The Chicago Mercantile Exchange (CME) and Commodity Futures Trading Commission (CFTC) issued an Order filing and settling charges against an unregistered Hong Kong-based hedge fund, Elephas Investment Management Ltd. (Elephas), for violating speculative limits in wheat contracts.

Regulation 150.2 sets speculative position limits that any person may hold or control for CBOT SRW futures contracts, among other agricultural futures contracts, including limits for the number of contracts for the spot month, any single month and all months of trading. Under Regulation 150.2, the spot month position limit for SRW futures is 600 contracts. According to the agencies, as of November 29, 2017, Elephas held a net long position in the Chicago Board of Trade’s December 2017 soft red winter wheat futures contract of more than 1,000 contracts over the spot month speculative position limit established by the CFTC. 

By exceeding the position limit and liquidating its overage through the delivery process, Elephas reduced its loss on its December Wheat position by $166,590. In accordance with the settlement offers, Elephas agreed to pay a fine of $50,000 and to pay the $166,590 benefit it received in reduced losses to the CME and $160,000 in a civil monetary penalty to the CFTC. 

These actions are an important reminder to both registered and unregistered entities that speculative limits apply to all market participants and to ensure compliance with the market rules. 

About Kennyhertz Perry’s Commodities, Futures, and Derivatives Practice Group

Kennyhertz Perry advises clients on a wide range of commodities and derivatives regulatory matters.  Kennyhertz Perry has experience in all types of derivative transactions and design structures to meet clients’ specific trading, financial, and/or credit needs.  The roots of the practice are in the commodities markets, where Kennyhertz Perry partner Braden Perry spent time as a Senior Trial Attorney with the Commodity Futures Trading Commission.  Our lawyers regularly advise our clients on compliance with the complex laws and regulations governing the securities and derivatives industries, including the Commodity Futures Modernization Act of 2000, the Commodity Exchange Act, the Gramm-Leach-Bliley Act, the Securities Acts of 1933 and 1934, the Investment Company Act of 1940, the Investment Advisers Act of 1940, the SEC and CFTC regulations, the rules of the various derivatives exchanges and clearinghouses and other industry self-regulatory organizations and the “Blue Sky” state securities laws. Keeping abreast of regulatory developments is imperative, and enables our lawyers to guide clients on comment-making about proposed legislation and regulation, provide ongoing operational and compliance counseling, and offer advice on appropriate modifications of transaction structure and documentation.

Clients also benefit from Kennyhertz Perry’s experience in related areas of law, such as litigation, banking, securities, insurance, and its regular practice before the Commodity Futures Trading Commission. Leaders in the financial industry choose Kennyhertz Perry because the firm’s lawyers tailor their advice to the unique issues presented by each matter they handle.

About Kennyhertz Perry’s Government Enforcement Practice Area

Kennyhertz Perry represents individual and corporate clients faced with the increased use of criminal enforcement to address business practices, particularly as they relate to financial issues. Mr. Perry brings his enforcement experience as well as his substantial prior experience in white-collar criminal defense practice, and as a firm, we represent corporate clients and individual officers and directors at every stage of government investigations and enforcement actions – including white collar criminal matters – initiated by state and federal agencies, including the Department of Justice, SEC, CFTC, FTC, and FINRA.

Kennyhertz Perry’s enforcement practice regularly defends clients against allegations involving a wide array of business contexts in federal and state grand jury investigations, trials, and appeals. In particular, we have represented clients in enforcement matters and related litigation involving a wide range of subject areas including Foreign Corrupt Practices Act (FCPA), consumer financial services, money laundering and Bank Secrecy Act, securities, commodities, options, and derivatives fraud, state and federal RICO laws, False Claims Act, and insurance fraud.

About Kennyhertz Perry, LLC

Kennyhertz Perry, LLC is a business and litigation law firm representing clients in highly regulated industries. The firm was founded by two veteran Kansas City attorneys, John Kennyhertz and Braden Perry. To learn more about the firm, visit

*The choice of a lawyer is an important decision and should not be based solely upon advertisements.